Two stage stochastic bilevel programming model of a pre-established timberlands supply chain with biorefinery investment interests

This work studies the supply allocation problem, using a Stackelberg game, for an established timberlands supply chain with an additional decision of new biorefinery investments. In a timberlands system, harvester and manufacturer decision makers have separate objectives to maximize their respective profits. This interaction is represented with a turn based Stackelberg game. The harvesters decide first on the quantity harvested, and the manufacturers decide on how much to utilize. This game is modeled with a bilevel mathematical program. The novel feature of this paper's bilevel formulation is the inclusion of parametric uncertainty in a two stage model. The first stage problem involves logistical decisions around biorefinery investments, such as location and capacity, while the second stage problem involves a bilevel timberlands model with parameter uncertainty. Studying this problem formulation revealed interesting insights for solving multiperiod problems with bilevel stages as well as the decision maker's behavior for the timberlands model. (C) 2014 Elsevier Ltd. All rights reserved.